Went to the Berkeley Entrepreneurs Forum panel discussion on corporate spin-outs tonight. It was an interesting discussion. There was an additional panelist from Siemens who discussed their efforts to "spin-in" new technologies, which I thought was a nice twist. My three main takeaways from the panel were:
Cleanliness: These deals can come with all kinds of sticky licensing arrangements, competitive restrictions, rights-of-first-refusal and the like, so it is important to make the deal as clean as possible right from the start.
Time, patience, and complexity: These deals take time (often upwards of a year) to put together so you have to be willing to invest some serious effort.
Culture (are the folks spinning out entrepreneurs?): Is a team that may be accustomed to a 9-5 (OK 8-6) schedule going to be willing to put in the super-human effort that is required to make a startup go?
The good news is that if you are willing to run these rapids you can find some significantly undervalued assets. One panelist estimated that the average R&D investment in the spun-out companies in which his firm had invested was around $25M and that their average pre-money valuation was $5M. Those are good deals if you can find them. Which brings me to my last point.
What I was really interested in, and what was not discussed at length, were the reasons *why* larger companies choose to spin ventures out. In the discussion around each example there appeared to be some critical precipitating event that caused the spin-out from the host enterprise. It appeared in one case it was Sarbanes-Oxley and in another to be some sort of balance sheet clean up, but it would have been nice to digger deeper into these factors and get a sense for why these companies made the decision to spin a venture out (and how to spot them coming!). Further, it would have also been interesting to discuss who was making the call to spin-out ventures (BU Execs, Business Development, CFOs, who were the people that typically drove these deals to completion on the inside?). But it makes sense that these topics were not discussed in all that much detail - you have to figure those are the real secret ingredients of the spin-out game.